View from Europe

Just when finance chiefs thought it had gone away, economic nationalism is back and running rampant across Europe.Janet Kersnar, CFO MagazineMay 8, 2006

When Fulvio Conti was promoted from CFO to CEO at Italian utility Enel last year, it was widely assumed that he would immediately use the company's €15 billion war chest to make some long-anticipated cross-border acquisitions. Like many other European companies, Enel has few growth opportunities at home; it needs to expand abroad or lose ground in its increasingly competitive sector. But with his recent friendly bid for French utility Suez, Conti has landed Enel right in the middle of a fierce debate between European business and government.

Conti's move is one of a growing list of cross-border deals that politicians are resisting in a bid to protect "national champions." The trend first became evident well over a year ago, with political opposition to Dutch and Spanish bids for Italian banks, and continues with political meddling in high-profile cases like the bid by India's Mittal Steel for Luxembourg-based Arcelor and Eon of Germany's attempt to buy Endesa in Spain. With no end in sight to such nationalistic saber-rattling, Europe's CFOs are concerned that corporate growth plans could be in jeopardy.

In truth, such outbursts are the exception rather than the rule. Cross-border deals are setting records across Europe, with the total value of deals announced in the first two months of this year reaching nearly $200 billion. For the first time, cross-border M&A accounts for more than half of all European deals, according to Bloomberg.

Yet European finance chiefs participating in the latest quarterly Duke University/CFO Business Outlook Survey have issued a warning. Nearly a third of respondents said that protectionism will adversely affect their companies if it is not curbed soon. Indeed, alarm bells will begin to ring if government meddling spreads to sectors beyond steel, utilities, and banking — the focus of politicians' attention thus far.

As for Enel, its "Suez crisis," as it is now often called in European business circles, continues. Upon learning about Conti's plan, French politicians, citing concerns about job losses, insisted that Suez isn't up for sale, and hastily arranged a merger with state-controlled Gaz de France to ensure it.

Meanwhile, Enel's war chest has grown to around €45 billion, according to reports in the Italian press. If Enel waits on the sidelines much longer, it won't have many targets to choose from — at least not in Europe.